The government has indefinitely extended a super tax being charged from the banks while also giving sweeping income tax concessions to local and overseas Pakistanis on their investments in the realty sector and the government debt through digital accounts.

These measures have been enforced with effect from February 12 through a presidential ordinance –the second in the past three weeks. Last month, the government also promulgated the construction sector tax amnesty scheme ordinance.

According to the ordinance, the 4% super tax has been extended indefinitely through an amendment. This tax was introduced for the first time in 2015 for only a year after the Pakistan Army launched Operation Zarb-e-Azb against militants in the tribal areas.

The purpose of the super tax was to raise funds for fighting war against terror and rehabilitate temporarily displaced persons. After numerous extensions, the 4% tax lapsed in December 2020.

The government has also imposed income tax on profits earned by resident Pakistanis on their foreign currency accounts. It has also slapped Rs50,000 to Rs200,000 income tax on sale of a newly bought car within three months of its purchase to discourage profiteering.

It has also introduced sweeping tax concessions for people investing in the Naya Pakistan Certificate –a debt instrument launched to raise funds for stabilizing foreign exchange reserves. The tax concessions are over and above highly lucrative profit rates paid to the investors.

The government has reduced the income tax rate to just 10% on profits made by investing through Foreign Currency Value Account (FCVA) or a non-resident Pakistani Rupee Value Account (NRVA). The existing rate was 15%.

The PTI government has launched the Naya Pakistan Certificates through the Roshan Digital Account (RDA). So far, around $460 million have been invested in these accounts.

The government has announced to pay from 5.5% on three-month certificates to 7% interest rate on investment in five years maturity certificates in US dollar terms.

On rupee-denominated certificates, the interest rates are in the range of 9.5% to 11%.

It has also reduced income tax rates on profits earned by overseas Pakistanis as well as locals on purchasing property through digital accounts.

As against the existing rates of 1% to 4% on selling and purchase of property and 2.5% to 15% capital gains, the government has reduced the rates to “approximately 2% of the value of property”, according to a commentary on the presidential ordinance by the Tola Associates.

“This fixed tax regime is a discrimination against local buyers and sellers of immovable property and the regime may also be used as a tool to whiten the black money as fictitious capital gains may be booked as was done through earlier fixed tax regime,” said Ashfaq Tola –a leading tax consultant.

Tola said if such transactions are done by a resident individual, he would have been charged significantly higher tax on capital gains. The government has also exempted the non-resident Pakistanis from filing the income tax returns.

They will also be exempted from the requirement of being on the active taxpayer list for availing benefits of reduced income tax rates. The nonresident Pakistanis investing through digital accounts will also be exempted from all types of banking transaction related taxes.

Taxes on cars

The government has also imposed fixed tax on locally manufactured motor vehicles that are sold within 90 days of delivery of such vehicles. This tax is adjustable and is applicable till June 30, 2021 only.

For up to 1,000cc cars, the tax rate is Rs50,000; for 1000cc to 2000cc cars, the rate is Rs100,000 and for 2,000cc above categories, the rate is Rs200,000.

The tax has been introduced to discourage the “on-money” culture in Pakistan which has been a major factor in price hikes in car prices over the past years.

The government has also lowered the withholding tax rate on registered fertilizer dealers. As against 0.7% existing rate being charged from fertilizer dealers, the rate of advance tax on sale to distributors, dealers or wholesalers of fertilizer is reduced to 0.25%.

Foreign currency accounts

Currently, any profit on debt is exempted from tax that is derived from foreign currency accounts held with authorized banks in Pakistan. This exemption also applied to certificates of investment issued by investment banks in accordance with the Foreign Currency Accounts scheme introduced by the State Bank of Pakistan to citizens of Pakistan, and foreign nationals residing abroad, foreign association of persons, companies registered and operating abroad and foreign nationals residing in Pakistan.

Now through the ordinance such exemption has been restricted to only non-resident individuals, non-resident association of person and non-resident companies. The local Pakistanis will be subject to normal income tax.

Similarly, currently, any profit on debt derived from a rupee account held with a scheduled bank in Pakistan by a citizen of Pakistan residing abroad, where the deposits in the said account are made exclusively from foreign exchange remitted into the said account is exempt from tax.

Now through the ordinance, such exemption has been restricted to only non-resident individuals holding a Pakistan Origin Card (POC) or the National Identity Card for Overseas Pakistanis (NICOP) or the Computerized National Identity Card (CNIC).

The restriction of above exemptions to only non-residents is discriminatory against residents, said Tola Associates.  There are approximately $7 billion reserves in these foreign currency accounts and out of these $7 billion, $5 billion to $6 billion are used by the government to showcase as foreign exchange reserves and to net off foreign exchange liabilities, it added.

The government has also extended income tax exemption, currently available on profits and gains derived by a taxpayer from a transmission line project set up in Pakistan on or after July 1, 2015 for a period of ten years, till June 2022.

With effect from July 1, 2019, the maximum tax payable by cotton ginners on their income and profits is capped at 1% of sum of their turnover from cotton lint, cotton seed, cotton seed oil and cotton seed cake. It shall be the final tax on cotton ginning and oil milling activities.

It has also reduced custom duties and sales tax on imports of electric vehicles and their components.